Your guide to debt consolidation in Ontario
In Ontario, debt consolidation is an increasingly sought-after service. You see, Ontarian households owe an average of between $124,700 and $157,700 – far outpacing the national average of $114,400.
Thankfully, debt consolidation loans in Ontario are relatively easy to find. Keep reading to learn more about these loans and how Alpine Credits can help you secure one at a great rate.
What are debt consolidation loans?
Debt consolidation loans allow you to combine multiple obligations into a single monthly payment. This is a necessity for many Ontarians who have fallen on hard times financially due to factors such as:
- excessive credit card spending
- job loss
- unexpected expenses
- having too many credit products to keep track of
Debt consolidation services in Ontario are also increasingly popular among those who simply want to make their debt more manageable. While such individuals aren’t facing any imminent issues, the prospect of making a single monthly payment – possibly at a lower interest rate than the initial debt – is understandably alluring. Let’s take a closer look at debt consolidation’s benefits.
Benefits of debt consolidation
Potential improvements to your credit score
If you’ve missed payments due to the difficulty of keeping up with multiple monthly payments, it’s very likely your credit score has taken a hit. Debt consolidation can help you stay on track with due dates and, over time, your more consistent repayments will improve your score.
A potentially lower interest rate
If your financial situation has improved recently, you may be able to consolidate debt at an interest rate lower than those on the initial loans. Even shaving just a few percentage points off your interest rate can save you tons of money over the long haul, especially when it comes to high-interest debt like credit cards.
Peace of mind
Beyond the financial consequences of having too many payments to keep track of, such a situation can be incredibly stressful. If you’ve ever found yourself waking up in the middle of the night wondering whether you missed any payments, you’ll find the simplification that debt consolidation brings incredibly refreshing.
Because debt consolidation can limit the amount of interest you pay, you’ll also benefit from becoming debt-free faster.
Debt consolidation requirements in Ontario
Here are some of the requirements of traditional debt consolidation services in Ontario.
A good credit score
Unless you have a good credit score, it’s very unlikely you’ll qualify for a debt consolidation loan at a reasonable interest rate. Credit scores in Canada typically fall into the following ranges, according to Equifax:
- Fair: 580-669
- Good: 670-739
- Very Good: 740-799
- Excellent: 800+
Later in this article, we’ll discuss how you can receive a debt consolidation loan in Ontario even if you have bad credit.
A reasonable debt-service ratio
Your debt-service ratio is among the key factors affecting your credit score. This metric represents the percentage of your monthly income that goes towards debt repayments. Generally, lenders prefer to see a ratio of no higher than 35%. For the average Canadian earning just over $32,000 per year, that means your debt repayments shouldn’t exceed $959 per month.
That’s a tall order in Ontario, of course, given how expensive mortgage payments alone can be (never mind your car and credit card bills).
If your debt-service ratio exceeds 35%, a consolidation lender will likely view you as being too risky a borrower. In their eyes, you’re just a financial emergency away from being unable to make repayments.
Thankfully, the same debt consolidation loan option for Ontarians with bad credit applies to those with poor debt-service ratios. Again, we’ll look at that shortly.
Banks and other conventional lenders in Ontario limit you to consolidating specific types of debt. These are typically unsecured loans such as:
- credit cards
- payday loans
- late utility bills
Notably missing from the list of loans qualifying for consolidation via traditional institutions are secured debts such as car notes and mortgages. This poses a challenge for Ontarians looking to combine, for example, their credit card bills with multiple car loans.
That’s where home equity loans come in. With a home equity loan, you can consolidate virtually any type of loan you’d like, including secured debt.
How home equity loans work for debt consolidation in Ontario
Ontario’s real estate market is one of the nation’s hottest, based on data from the Canadian Real Estate Association. If you bought a home in Canada’s most populous province more than a few years ago, it’s very likely your property is now valued much higher than its initial sales price. This leaves you with a substantial amount of what’s known as equity. We calculate home equity using the following very simple equation:
The Financial Consumer Agency of Canada lets you borrow from your home equity an amount no greater than 80% of the property’s value. Given that the average house price in Ontario exceeds $700,000, this leaves you with plenty of room to borrow.
The best part? Home equity loans are relatively easy to qualify for. While traditional debt consolidation lenders conduct thorough credit and income checks, the outcome of a home equity loan hinges largely on whether you have any equity available. In other words, even if you’re unemployed, you can get a home equity debt consolidation loan in Ontario.
Click here to learn more about how home equity loans work.
Benefits of using a home equity loan for debt consolidation in Ontario
Here are some of the specific benefits you’ll unlock by using a home equity loan for debt consolidation in Canada’s most populous province.
Competitive interest rates
If your credit score is less than stellar, traditional debt consolidation services in Ontario will likely charge you a higher interest rate to compensate for the risk. Because home equity loans are secured, however, providers are able to offer more competitive rates. Visit this page to see how our interest rates compare to those of other lenders.
Benefit from rising property valuations without selling your home
As mentioned earlier, Ontario is home to one of Canada’s – and, indeed, the world’s – hottest real estate markets. In light of this, we believe no homeowner should have trouble receiving financing.
Think about it. According to the Ontario Real Estate Association, house prices in the province are up nearly 18% from a year ago. Why should you have difficulty getting a loan given such stellar investment performance?
A home equity loan allows you to temporarily borrow against these profits for debt consolidation without selling your home.
You can borrow much more than with other types of debt consolidation loans in Ontario
Because you’re allowed to borrow up to 80% of your property’s value via a home equity loan, this leaves you with potentially hundreds of thousands of dollars to use. This amount greatly exceeds what you’d be able to receive via a traditional unsecured debt consolidation loan, allowing you to streamline more obligations.
Simple application process
Given that home equity lenders aren’t particularly concerned with your credit score or income, the application process is much simpler than with traditional financing. At Alpine Credits, we aim to deliver application decisions within as little as 24 hours.
Alternatives to home equity loans for debt consolidation in Ontario
If you don’t own your home you, of course, won’t qualify for a home equity loan. Here are some other options for you to consider.
Debt consolidation services in Ontario
If you have poor credit, you may want to consider applying with a dedicated debt consolidation service. Unlike major banks, these lenders specialize in dealing with consumers who have bad credit.
If you require a deeper level of guidance than a simple debt consolidation loan would provide, credit counselling is a reasonable option. Your counsellor will work with your creditors to arrive at a suitable payment plan based on your situation.
This can provide many of the benefits associated with debt consolidation, including streamlined payment due dates, but does not necessarily involve receiving a lump-sum to repay your debts.
Contact Alpine Credits to secure a debt consolidation loan in Ontario today
If you’re currently looking for a debt consolidation loan in Ontario, contact Alpine Credits. While we specialize in offering home equity loans, our financing partner (Full Circle Debt Solutions) can also help you develop a debt management plan regardless of whether you own property.
Frequently asked questions
A debt consolidation loan can be tremendously helpful if you’re looking to streamline multiple obligations by making one monthly payment. As long as you choose your debt consolidation method wisely based on your situation, you should receive this and many more benefits.
A debt consolidation loan may temporarily affect your credit score if the loans you pay off with the lump-sum were your oldest accounts. You see, the average age of your accounts plays a major role in determining your credit score.
However, this hit will be temporary. Additionally, the benefits of debt consolidation will likely far outweigh the downsides of a temporary drop in your credit.
If you own your home, an equity loan will likely be the smartest approach to consolidating debt. This type of loan is incredibly easy to get. Additionally, because home equity loans are secured, you’ll pay a much more reasonable interest rate than with other types of consolidation loans.
If your debt is spread out across multiple credit cards, you can use a debt consolidation loan to pay them all off. Then, you’ll be left making payments on just the debt consolidation loan.